Did Oracle USA cheat to win? Should our businesses do so as well?

The moment I realised Emirates Team New Zealand was in trouble was when Oracle Team USA played their postponement card for Race 6, with the scores at 4 points to NZ and minus 1 to USA. That was the signal that Oracle USA was clear that they were slower than New Zealand, and that they had to radically improve.

“We feel they have an edge on us at the moment, especially upwind,” said Spithill. “We need to do a bit of work here and we’re going to play the card, strategically, and hopefully improve in time for the next race.”

How right he was.

The time gave the shore team permission to design and implement major improvements, and over the ensuing days it was clear that the USA shore team were in afterburner mode, and the improvements in speed kept coming. Meanwhile the Oracle USA team’s sailors just kept getting better and better, to the point now, 12 races later and tied at 8 races each, including Oracles’ 2 point penalty, the Oracle boat is clearly faster in all modes, upwind and downwind.

How did this happen?
Team New Zealand ran an exemplary campaign, right up until the last few days when they ran out of resources. They were the first to foil, had the most time on the water, were the first to semi-foil upwind and had a clear advantage over all the other teams in crew work.

At 8 races to 1 ahead it seemed to many that the Americas Cup was all over, but for me two of those races we won by out-sailing a boat that looked a little faster than ours.

Since then it’s become increasingly clear that the Oracle USA team had really woken up, and fuelled no doubt by a budget beyond belief, they took the steps, and perhaps risks, required to make their boat faster and faster.

Their boat was re-measured before each race, as they were improving it but also, it seems, customising it to the conditions. For example, they chopped the bowsprit off for races in high winds when a code zero sail was not required. They copied and improved upon the New Zealand boat design and the way the sailors handled the boat. As they became faster that gave their skipper and crew more confidence on the water, and results on the board.

We have heard little about what is happening behind the scenes, but I suspect that there a lot of the credit should go to the many smart people in front of computers, using video and sensor feeds to manipulate immense volumes of data, running major simulations and constantly improving things for the Oracle USA team.

New Zealand lost their chance to turn things around, their momentum and probably the regatta for me a few days ago, when they failed to ever play their postponement card.

It was increasingly clear that the Oracle boat and crew were faster in all modes, but Team NZ were not prepared, or more likely able, to make the major changes required to keep up with Oracle. Was it money, team size or simply lack of creativity? Dean Barker’s quote from yesterday is telling, as he compared Team NZ with the Oracle USA team and their huge resources:

“We have little tweaks here and there, but there’s nothing major we can do. We don’t need to make massive changes. The boat is going well, we just need to sail it well.”

Team New Zealand had a clear advantage in their program of continuous improvement. But hats off to Oracle, who ran a poor campaign for many months, but got it together in the last few weeks. Their larger team and budget, more ambitious program and in the end high-performing team has delivered.

Take nothing away from either team, as this has been a stunning rate of development for boats that were never meant to be able to hydroplane on just one foil.

The scale and speed of the races are right up there with Formula 1, and New Zealanders and New Zealand firms are across all of the teams and the competition itself. It’s been amazing, and the Wikipedia page on Hydrofoils does need some serious re-writing.

And we could still win, as I write this.

So this regatta must happen again, whether we win or lose, in some form or other, with radically fast boats like these. The great thing is that New Zealand technology will continue to play the key role in the regatta, as it has for this campaign for all teams.

The Lessons: be brave
As in business, it’s always been clear that in America’s Cup racing that standing still is not good enough to win, and companies must continuously improve their products, services and internal processes.

However sometimes that’s not enough, and a business can beheading in the wrong direction.

In that case, as it when Oracle USA was heading for defeat, some major changes in strategy are required. The time to make these changes is as soon as you realise that the competitors have an advantage.

Arguably Team NZ needed to do the same a few races later, once it was clear Oracle UA was faster.

That’s hard to do when you are one race away from winning. But, again as in business, it’s all about the growth rates not the results today. That’s why the real competitors to watch out for are not the sleepy incumbents, but the rising stars whose growth rates will eventually lead to domination.

In the mobile phone industry the incumbent competitors, including Nokia, Blackberry, Motorola, and Microsoft, failed to change their approach radically enough to cope with the emergence of the iPhone, allowing Apple, Google and Samsung to dominate.

The newspaper industry had far longer to decide, with the very obvious rise first of free classified papers, and later of the internet-fuelled competitors like Trade Me in New Zealand and eBay and Craigslist elsewhere. It took a long time for them to wake up, and the only decent response I’ve seen was when an industry outsider, David Kirk as CEO of Fairfax Media, to buy up the major New Zealand online player, Trade Me. An inspired purchase that since then has delivered 22% annualised return to shareholders (Fairfax Media or not).

Oracle USA had essentially unlimited resources, and the same is required if a company is going to repurpose itself for a major strategic shift.

Most large companies are simply incapable of doing so, with embedded bureaucracy, norms and people who believe in one version of the ecosystem. We sometimes see these companies forming internal innovation groups, but they generally fail as they are either staffed with people with the internal mindset, or are constrained by having to work for the same. A true shift in direction must be driven come from the top, who unleashes the folks at the very bottom who generally know the answer. This needs a strong CEO with the support of the board and shareholders. Sadly that support usually only comes when it is far too late, as the quarterly results have already plummeted.

There is a great Harvard Business School series of case studies on Team New Zealand’s earlier campaigns. The kiwi teams ran superb campaigns to win and hold the cup. The cases hold many valuable lessons in high performance leadership and teamwork, and in continuous improvement. This regatta demands a new case study.

Now the real race begins
New Zealand has gained a lot from this  Americas Cup campaign, win or lose.

The campaign was backed by our Government, and by a number of high profile sponsors.

Less known is that behind the scenes were a number of high net worth individuals who put their own time, money and commitment into the team, receiving little in return. Our sincere thanks to them.

But the challenge now is whether we can we take advantage of our collective edge in understanding the technology behind this new dimension to sailing.

From previous regattas we saw the formation or acceleration of companies like Southern Spars, Doyle NZ, Structurflex and a host of boat builders.

We have a chance to be the first to bring, somehow, the advanced technology back to more mainstream sailing as well as to other industries.

Can a local firm become the first to bring semi-inflatable wing sails to the industry? Can we create computer-controlled rigs that can automatically find “the right mode” for yachts? Can we apply the hydrodynamics and aerodynamics lessons learned to bicycle building and other endeavours? Can we move beyond an elite sport to more mainstream products?

I suspect we can, and will certainly be looking closely for stories of companies who are doing so. Meanwhile we have a whole other race on here, the rce to meet Sir Paul Callghan’s vision of $40 billion per year in high tech driven exports. That’s a slower race, but the companies that will drive it are currently in formation and rapid growth stage.

Well done
My congratulations to everyone involved – we’ve run an amazing campaign and as we head into tomorrow, win or lose, we can be proud of what we have achieved.

But let’s win – that would be much better.

Lance Wiggs is a director of the Punakaiki Fund.